Altria and Vector Group, both of which offer dividend yields exceeding 7% on an annualized basis. Here’s a breakdown of each company’s profile:
Altria (MO):
- Altria is a leading U.S. tobacco company known for brands like Marlboro, which holds a 50% market share in its segment.
- The company operates in various tobacco and related segments, including smokeless tobacco, cigars, and oral nicotine pouches.
- Altria has a strong history of dividend growth, having increased its dividend 58 times in the last 54 years.
- It currently offers an annualized yield of 8.9%, significantly higher than the S&P 500 average.
- However, investors should be aware of the high payout ratio of 98.9%, which suggests that most of the earnings are paid out as dividends, potentially limiting reinvestment in the business or addressing unexpected challenges.
Vector Group (VGR):
- Vector Group operates in two sectors: discount tobacco and real estate, with most revenue coming from its tobacco subsidiaries.
- It offers low-cost cigarette brands, aiming for a lower price point compared to premium brands.
- Vector Group pays a healthy annualized yield of 7.7%, with shares trading at a relatively low valuation of 9 times projected earnings.
- The company’s payout ratio is at 79.2%, and it has reduced the dividend in the past. However, positive trends in free cash flows and income suggest the dividend should be sustainable in the near term.
Both Altria and Vector Group are considered attractive for income investors due to their high dividend yields and relatively low valuations. However, investors should be cautious and consider the risks associated with the tobacco industry, which faces ongoing challenges and regulatory changes. These stocks may be suitable as a part of a diversified income-oriented portfolio but should be approached with a clear understanding of their industry-specific risks.
